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defense industry

Pentagon sees savings in block buying of V-22 Osprey

Posted:
Friday, March 2, 2012 8:58 am

By Tony CapaccioBloomberg News

WASHINGTON - The Defense Department will realize “substantial savings” from further five-year purchases of weaponry, including the V-22 Osprey from Textron Inc. and Boeing Co., the Pentagon’s top weapons buyer told Congress.

Kendall’s letter is a first step required before congressional review and the eventual signing of contracts. Multiyear commitments are seldom canceled because the Pentagon would have to pay substantial termination fees to contractors and would face opposition from congressional champions of the systems being scrapped.

Bulk contracts also let companies buy parts in advance, with savings passed on to the Pentagon, and maintain a stable workforce. Kendall’s letters outlined initial expected savings derived from the Pentagon’s cost-analysis unit.

The biggest savings over annual purchases would be $4.4 billion, or 14 percent, for nine Virgina-class submarines bought between 2014 and 2018 from Huntington Ingalls Industries Inc. of Newport News, Va., and General Dynamics Corp.’s Groton, Conn,-based Electric Boat unit. Annual purchases would cost as much as $31 billion in contracts for the vessels, radar and sonar.

Nine Destroyers

Bulk contract purchases of nine new missile-defense capable DDG-51 destroyers built by Huntington and General Dynamics’ Bath Iron Works, of Bath, Maine, would save $1.5 billion, or 9 percent, over an estimated $17.7 billion in annual contracts.

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